DECISION APPROVING SETTLEMENT AGREEMENT AS AMENDED … · 2015. 1. 27. · On April 2, 2014, six...

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ALJ/MD2/KD1/sbf Date of Issuance 11/25/2014 Decision 14-11-040 November 20, 2014 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Investigation on the Commission’s Own Motion into the Rates, Operations, Practices, Services and Facilities of Southern California Edison Company and San Diego Gas and Electric Company Associated with the San Onofre Nuclear Generating Station Units 2 and 3.

Investigation 12-10-013 (Filed October 25, 2012)

And Related Matters.

Application 13-01-016 Application 13-03-005 Application 13-03-013 Application 13-03-014

DECISION APPROVING SETTLEMENT AGREEMENT AS AMENDED AND RESTATED BY SETTLING PARTIES

I.12-10-013 et al. ALJ/MD2/KD1/sbf

Table of Contents

Title Page

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DECISION APPROVING SETTLEMENT AGREEMENT AS AMENDED AND RESTATED BY SETTLING PARTIES ........................................................................... 1

Summary .................................................................................................................. 2 1. Background ....................................................................................................... 7 2. Procedural History ......................................................................................... 12 3. Standard of Review ........................................................................................ 21 4. The Settlement Agreement ........................................................................... 22

4.1. Joint Motion to Adopt Settlement Agreement .................................. 22 4.2. Terms of Settlement Agreement .......................................................... 23

5. Parties’ Positions ............................................................................................ 30 5.1. Settling parties ........................................................................................ 30

5.1.1. The Agreement is Reasonable in Light of the Whole Record............................................................................. 31

5.1.2. The Agreement is Consistent with the Law .......................... 33 5.1.3. The Agreement is in the Public Interest ................................. 34

5.2. Other parties ........................................................................................... 35 5.2.1. Parties Not Opposed to the Settlement Agreement ............. 35

5.2.1.1. CLECA .............................................................................. 35 5.2.1.2. AReM/DACC .................................................................. 36 5.2.1.3. Joint Parties ....................................................................... 37 5.2.1.4. World Business Academy (WBA) ................................. 38

5.2.2. Parties Opposed to the Settlement Agreement ..................... 39 5.2.2.1. Alliance for Nuclear Responsibility .............................. 39 5.2.2.2. Women’s Energy Matters (WEM) ................................. 43 5.2.2.3. Coalition to Decommission San Onofre ....................... 45 5.2.2.4. Ruth Henricks .................................................................. 49

5.3. Settling Parties’ Reply Comments ....................................................... 51 5.3.1. Joint Settling Parties .................................................................. 51

5.3.1.1. Agreement is Consistent With The Law ...................... 52 5.3.1.2. Agreement is Reasonable in Light of the Whole

Record and in the Public Interest .................................. 54 5.3.1.3. The Commission Should Reject

Alternative Terms ............................................................ 56 5.3.2. SCE .............................................................................................. 59 5.3.3. SDG&E ........................................................................................ 60


Table of Contents (Cont’d)

Title Page

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6. Due Process Considerations ......................................................................... 61 6.1. The Settlement Conference ................................................................... 61 6.2. Timing of the Settlement Agreement .................................................. 64 6.3. The Hearing on the Settlement Agreement ....................................... 65

6.3.1. No Prehearing Conference ....................................................... 65 6.3.2. Conduct of Hearing .................................................................. 66

7. Discussion of Settlement Terms ................................................................... 69 7.1. Agreement is Consistent With the Law.............................................. 70

7.1.1. Agreement Is Not Defective Pursuant to Rule 12.1 ............. 71 7.1.2. Resulting Rates Will Not Violate §451, §455.5,

and §463(a) ................................................................................. 73 7.1.3. Settlement is Not Inconsistent With Prior Decisions ........... 76 7.1.4. NRC Notice of Violation to SCE is Not

Determinative of SCE’s Imprudence ...................................... 79 7.1.5. ORA’s Participation Does Not Violate § 309.5 ...................... 81 7.1.6. Allegations of Collusion ........................................................... 82 7.1.7. Other Legal Claims ................................................................... 84

7.2. Agreement is Reasonable in Light of the Whole Record ................ 85 7.2.1. Recovery of 2012-2013 Operations and

Maintenance (O&M) and Non-O&M Costs .......................... 88 7.2.2. Recovery of CWIP ..................................................................... 91 7.2.3. Reduction of Current Inventories ........................................... 94 7.2.4. Materials and Supplies ............................................................. 96 7.2.5. Recovery of Net Investment and Reduced Return

on Base Plant .............................................................................. 98 7.2.6. No Recovery for Post-Outage SGRP costs ........................... 100 7.2.7. Recovery of Replacement Power .......................................... 102 7.2.8. Sharing of Third Party Recoveries ........................................ 105 7.2.9. Other Terms ............................................................................. 107

7.2.9.1. Community Education & Outreach ............................ 107 7.2.9.2. General Recitals and Findings of Fact in

Joint Motion .................................................................... 108 7.2.10. Amended Agreement as a Whole is Reasonable

in Light of the Whole Record ................................................ 109 7.3. Agreement in the Public Interest ....................................................... 109

7.3.1. Termination of Investigation ................................................. 110


Table of Contents (Cont’d)

Title Page

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7.3.2. Settlement Does Not Need to Be Perfect ............................. 115 7.3.3. Delayed refunds & remedies ................................................. 116 7.3.4. Increased Greenhouse Gas Emissions and Other

Unrecognized Effects .............................................................. 119 7.3.5. Commission Oversight of Litigation and Refunds ............ 122 7.3.6. Third Party Litigation Recovery ........................................... 124 7.3.7. Filing of Revised Tariff Sheets ............................................... 127 7.3.8. Clarifications and Other Modifications to

the Agreement ......................................................................... 128 8. Rate Adjustments for Direct Access Customers ...................................... 129 9. Oral Argument ............................................................................................. 130 10. Comments on Proposed Decision ............................................................. 130 11. Assignment of Proceeding .......................................................................... 131

Findings of Fact ........................................................................................................... 131 Conclusions of Law ..................................................................................................... 134 ORDER ......................................................................................................................... 136

Appendix A – Exhibit List Appendix B – Amended, Restated Settlement Agreement


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DECISION APPROVING SETTLEMENT AGREEMENT AS AMENDED AND RESTATED BY SETTLING PARTIES

Summary

This decision approves a settlement agreement between Southern

California Edison Company (SCE)and San Diego Gas & Electric Company

(SDG&E) (collectively, the Utilities) and four other settling parties which

provides resolution of rate recovery issues related to the premature shutdown of

San Onofre Nuclear Generating Station (SONGS), following a steam generator

tube leak on January 31, 2012. The original settlement agreement was amended

and restated (Amended Agreement), inter alia, to provide that SCE and SDG&E

shall each equally share net litigation proceeds from Mitsubishi Heavy Industries

between their respective ratepayers and shareholders, and to improve

Commission oversight of utility implementation of the settlement, particularly as

to development of the revised rates.

The primary result of the settlement is ratepayer refunds and credits of

approximately $1.45 billion. The Utilities must also stop further collection of the

Steam Generator Replacement Project (SGRP) costs in rates, return all SGRP costs

collected after January 31, 2012 to ratepayers, and accept a substantially lower

return on other prematurely retired SONGS assets.

Ratepayers will still pay approximately $3.3 billion in costs over ten years

(2012-2022), including costs of power the Utilities purchased for its customers

after the outage, and recovery of the undepreciated net investment in SONGS

assets (e.g., Base Plant), excluding the failed SGRP.

However, instead of the usual authorized rate of return, the settlement

reduces shareholders return on SONGS investments to less than 3%. The effect is


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ratepayers save approximately $420 million over the ten-year depreciation

period.

After a leak was detected in a new Unit 3 replacement steam generator

(RSG) on January 31, 2012, neither SONGS reactor unit (Units 2 and 3) generated

electricity for ratepayers.1 In June 2013, SCE decided to permanently shut down

both units. The Utilities initially asked to keep several different categories of

expenses, both unusual and routine, collected from ratepayers in 2012 and

thereafter.

SCE and SDG&E both have an ownership interest in SONGS.2 The

Commission filed this Order Instituting Investigation (OII) on October 25, 2012,

commencing an investigation into the SONGS shut down. The OII was

consolidated with our deferred general rate reviews of 2012 SONGS-related

expenses for each utility3 and the reasonableness review of each utility’s

recorded costs for replacing four steam generators at SONGS.4 The Utilities and

other parties provided substantial testimony, evidence, and argument during the

proceedings to date, including claims by some that SCE bore fault in the design

of the RSGs.

Although hearings were held for early phases of the OII, no final decisions

have been adopted by the Commission in the consolidated proceedings.

1 Unit 2 was non-operational in January 2012 due to a scheduled refueling outage.

2 Edison is the majority owner and the operator of the SONGS facility; The City of Riverside also holds a fractional ownership share.

3 Application (A.) 13-01-016 (Edison);

4 A.13-03-015; The replacement of the four steam generators was approved by the Commission in D.05-12-040 which ordered a reasonableness review of the Utilities’ expenses related to the replacement project after completion.


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Furthermore, hearings have not been held on issues related to review of expenses

for the Commission-approved SGRP.5 As part of that cost review in Phase 3, we

would have looked at whether SCE acted reasonably as a plant operator, and

how the SGRP expenses should be divided between utility customers and utility

shareholders.

On April 2, 2014, six parties: SCE, SDG&E, Office of Ratepayer

Advocates, The Utility Reform Network, Friends of the Earth), and Coalition of

California Utility Employees (collectively, Settling Parties) served a Joint Motion

for Adoption of Settlement Agreement to resolve all issues in the consolidated

proceedings. The Settling Parties fairly reflect a diverse array of affected

interests in this proceeding.

Alliance for Nuclear Responsibility, Women’s Energy Matters, Coalition to

Decommission San Onofre, and Ruth Henricks (collectively, Opposing Parties)

filed comments challenging various elements of the proposed settlement.

Opposing Parties primarily reject the settlement because the Commission has not

completed its investigation into whether SCE shares culpability with Mitsubishi

Heavy Industries (Mitsubishi), the designer and manufacturer, for “design

errors” in the RSGs. Opposing Parties are optimistic the evidence will show SCE

has whole or partial fault related to the defective RSG design, shifting liability for

some costs.

On September 5, 2014, the assigned Commissioner and Administrative

Law Judges issued a ruling requesting the Settling Parties make certain

modifications to the proposed settlement agreement in support of the public

5 Decision (D.) 05-12-040 (A.04-02-026).


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interest. The ruling identified our public interest concerns with some provisions,

including a failure to address “external” consequences of the shutdown, i. e.,

increases to greenhouse gases due to power purchases from non-nuclear sources.

The Settling Parties accepted the changes and submitted the Amended

Agreement.6

Based on the entirety of the record established to date, and after thorough

consideration of the Settling Parties' arguments, the opposition by Opposing

Parties, and other parties’ comments, we determine that the modified settlement,

is a reasonable, efficient and timely resolution of this investigation. Although

more parties have since voiced support, it is not an all-party settlement.

The settlement establishes ratemaking treatment for the different expense

categories, primarily by establishing February 1, 2012 as the key date for

reducing ratepayer costs and calculation of refunds.

Significant features of the settlement include the following:

As of February 1, 2012: (1) ratepayers stop paying for the Utilities’ investment in the shutdown RSGs; (2) SGRP capital-related revenue collected thereafter is refunded to ratepayers; and (3) depreciation of approximately $100 million previously collected, when the RSGs produced electricity, is retained by the utilities;

As of February 1, 2012, approximately $1 billion of SCE’s non-SGRP investment in SONGS is removed from rate base and recovered at a reduced rate of return (less than 3% through 2014) and over an extended (10-year) amortization period; the net difference is estimated to be a reduction to the Utilities of approximately $419 million, present value revenue requirement;

6 Joint Submission of Amended Settlement Agreement September 24, 2014.


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For 2012, SCE will keep $389 million for Operations and Maintenance expenses and will not recover in rates approximately $99 million spent in excess of the amount provisionally authorized in its 2012 General Rate Case;

The Utilities recover all costs for power purchased from January 1, 2012 until after the settlement is adopted.

A sharing formula allocates between ratepayers and shareholders any recovery from insurance7 or claims against Mitsubishi. After deducting litigation costs, as modified, the ratepayers and shareholders will share 50%/50% in all recovery from the pending multi-billion arbitration claim by the Utilities against Mitsubishi.

Refunds due to ratepayers will be credited to each utility’s under-collected Energy Resource Recovery Account balance upon adoption of the settlement by the Commission to reduce otherwise approved rate increases.

Directs the Utilities to develop a multi-year project associated with the University of California (UC) or UC-affiliated entities, funded by shareholder dollars, to spur immediate, practical, technical development of devices, methodologies, and processes to reduce emissions at existing and future California power plants tasked to replace the lost SONGS generation.

In this decision we address, and are unpersuaded by the arguments by

Opposing Parties urging the Commission not to adopt the settlement. Several

other parties, namely California Large Energy Consumers Association, Alliance

for Retail Markets/Direct Access Coalition, Joint Minority Parties, and World

Business Academy have subsequently voiced general or conditional support

(e.g., with implementation advice) for the proposal.

7 Nuclear Energy Insurance Limited.


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In sum, the Commission is satisfied that the amended and restated

settlement will result in just and reasonable rates, is consistent with the law,

reasonable in light of the whole record, and in the public interest.

1. Background

In Decision (D.) 05-12-040, the Commission authorized replacement of the

four steam generators at the San Onofre Nuclear Generating Station (SONGS)

Units 2 (U2) and 3 (U3), to be followed by a reasonableness review of the project

costs after completion. The Commission provided a conditional presumption of

reasonableness for the Steam Generator Replacement Project (SGRP) expenses, if

actual total costs did not exceed the adopted estimate of $680 million (in 2004$).8

However, the Commission reserved the option to undertake a reasonableness

review of costs, even if within the accepted cost cap.9 To what extent ratepayers

are responsible for the costs of the SGRP is at issue in this proceeding.

Southern California Edison Company (SCE) contracted with Mitsubishi

Heavy Industries (Mitsubishi) for the design and manufacture of the

Replacement Steam Generators (RSG). U2 went online in January 2010 with its

new RSGs, and U3 followed in January 2011. On January 10, 2012, U2 was taken

out of service for a scheduled Refueling Outage (RFO) and expected to return to

service on March 5, 2012. U3 was taken offline on January 31, 2012, after station

operators detected a radiation leak in a steam generator tube. Evidence of

similar types of excess vibration wear were found in the tubes of both the U2 and

8 In D.11-05-035, we reduced the $680 million approved by D.05-12-040 to $670.8 million to reflect changes in the project’s scope.

9 D.05-12-040 at Ordering Paragraph (OP) 11, as modified by D.11-05-035.


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U3 RSGs, although less advanced in U2. The Utilities began recovering

associated RSG costs in rates after each unit went online.

In February 2012, the United States Nuclear Regulatory Commission

(NRC)10 sent an inspection team to examine the RSG tube damage and SCE’s

response. The NRC then issued a Confirmatory Action Letter, confirming SCE’s

agreement not to restart the units until SCE had obtained NRC permission to

restart.11 The team found SCE’s plant operators responded to the January 31

tube leak “in accordance with procedures and in a manner that protected public

health and safety. Plant safety systems also worked as expected during the

event.”12 Nonetheless, SCE was faced with a set of decisions including how

much time and money to spend figuring out what went wrong, whether it was

feasible to fix the RSGs to NRC specifications, and how to manage reliability of

electrical service during the extended outages.

During and after 2012, SCE recorded expenses for various SONGS-related

actions including inspection, analysis, and repair activities related to the RSGs, as

well as for continuing operations and some previously planned capital projects.

In June 2012, SCE began preliminary work to put U3 into Preservation Mode.13

10 Arizona v. United States, 132 S. Ct. 2492, 2501 (Radiological safety represents an arena of preemption that "Congress, acting within its proper authority, has determined must be regulated by its exclusive governance.")

11 NRC Confirmatory Action Letter (March 27, 2012); Order Instituting Investigation (OII) Attachment A.

12 SONGS--NRC Augmented Inspection Team Report 05000361/20122007 and 05000362/20122007 (June 18, 2012) (AIT Report) at Executive Summary; available at

http://pbadupws.nrc.gov/docs/ML1218/ML12188A748.pdf

13 SCE-10 at Q4 (Preservation Mode is a temporary state of non-operation where the nuclear fuel is removed).



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San Diego Gas & Electric Company (SDG&E), as a minority owner, was billed by

SCE for its share of SONGS-related expenses. SCE and SDG&E (collectively

Utilities) have also had to purchase power to replace power lost due to the

SONGS outages. To the extent these purchases have been more costly than the

price of the lost power, ratepayers have borne the consequential expense.

Although SCE submitted a plan to NRC in October 2012 to restart the

units, neither U2 nor U3 generated electricity again. Instead, the NRC eventually

referred SCE’s proposed restart plan14 to the Atomic Safety Licensing Board

(ASLB) which concluded SCE would need to obtain a license amendment, a

potentially lengthy process.15 On June 7, 2013, SCE announced it would not seek

to restart either SONGS unit.

During 2012, both SCE and SDG&E had pending general rate cases (GRC)

wherein each utility included forecasts for test year 2012 SONGS-related

expenses which assumed a fully operational generation facility. The

Commission declined to give final approval to either utility’s estimated

SONGS-related expenses in the GRCs, due to the non-operation of both units

after January 2012. Instead, the Commission deferred final reasonableness

review of that portion of revenue requirement to this investigation, to be instead

based on actual 2012 expenses in light of the changed circumstances.16 The

14 SCE Response to NRC Confirmatory Action Letter (October 3, 2012), available at http://pbadupws.nrc.gov/docs/ML1335/ML13357A058.pdf

15 ASLB Memorandum and order (May 13, 2013), The September 11, 2014 Administrative Law Judges’ Ruling Taking Official Notice of Documents and Addressing Various Motions took official notice of this document, available at http://pbadupws.nrc.gov/docs/ML1313/ML13133A323.pdf

16 Each utility was permitted to collect an amount up to the preliminarily approved amounts, pending review in applications to be filed and consolidated with the OII.

http://pbadupws.nrc.gov/docs/ML1335/ML13357A058.pdfhttp://pbadupws.nrc.gov/docs/ML1313/ML13133A323.pdf


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Utilities have already collected the majority of their 2012 and 2013

SONGS-related expenses in rates, subject to refund. Rate recovery of these

expenses and for excess power purchases is at issue here.

In addition, Public Utilities Code17 Section (§) 455.5(a) grants the

Commission discretion to remove from rates the value of any portion of an

electric generation facility which remains out of service for nine or more

consecutive months, along with “related” expenses. This proceeding concerns

what portion of the SONGS plant the Commission could remove from rate base

and when. Parties differed as to whether all plant value and costs at SONGS

should be removed from rates as no longer “used and useful,”18 or whether some

portions of the plant (e.g., cooling systems, toxic control-related structures and

systems, storage of spent nuclear fuel) and related expenses (e.g., security,

personnel) are still necessary and, therefore, recoverable from ratepayers.

Some parties contend that if SCE acted imprudently in managing the

design of the RSGs, then ratepayers have no responsibility to pay for any costs at

SONGS after January 31, 2012 (and perhaps before).

SCE,19 the NRC,20 and Mitsubishi21 have all undertaken studies to

determine the cause of the excess tube-to-tube wear (TTW) in the RSGs.

Although responsibility for the problem is disputed, there is apparent agreement

17 Unless otherwise indicated, all references to code sections refer to the Pub. Util. Code.

18 § 454.8

19 SCE-04 at 82 (On April 23, 2012, SCE issued U2 tube wear Root Cause Analysis (RCA) which identified the cause of TTW as Fluid Elastic Instability (FEI)).

20 Investigation (I.) 12-10-013 OII Attachment A, AIT Report.

21 Mitsubishi Root Cause Analysis (October 12, 2012) at http://pbadupws.nrc.gov/docs/ML1306/ML13065A097.pdf.



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that the cause of the unexpected TTW was due to FEI. The AIT Report found

that both the U2 and U3 SGs were susceptible:

“…the NRC team concluded that both units’ steam generators were of similar design with similar thermal hydraulic conditions and configurations. Therefore, SONGS Unit 2 steam generators are also susceptible to this phenomenon (emphasis added).”22

The RSGs include some differences from the design of the original steam

generators (OSGs). These differences have sparked questions about the nature

and purpose of the design changes, and what SCE knew or should have known

about the safety implications of the changes. Responsibility for failure to

discover the potential for the excess wear, and consequential damages therefrom,

are subjects of a pending arbitration claim filed by SCE, since joined by the

SONGS co-owners, against Mitsubishi.23

Additionally, SCE and SDG&E state they have submitted claims and

proofs of loss to Nuclear Electric Insurance Limited (NEIL) to recover a portion

of the costs to purchase power to replace that lost from SONGS.24 It is unclear

whether the Utilities are pursuing additional claims under the accidental

property damage coverage, arising from facility damage related to the eventual

shut down of the SONGS plant.

22 I.12-10-013 OII Attachment A, AIT Report.

23 International Chamber of Commerce Arbitration (October 16, 2013); available at http://songscommunity.com/docs/101613_SCE_RFA_Redacted_Final.pdf.

24 Joint Motion at 7.

http://songscommunity.com/docs/101613_SCE_RFA_Redacted_Final.pdf


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On November 27, 2013, the NRC issued a Notice of Non-Conformance25 to

Mitsubishi based on finding the company did not establish measures for design

control interfaces: the output of the thermal-hydraulic code and input to the

flow induced vibration analysis software vibration code “were not verified to be

in accordance with {Mitsubishi} design requirements.”26

The NRC also issued a Notice of Violation27 to SCE which found design

control measures were not established to provide for verifying or checking the

adequacy of the output of the thermal-hydraulic code and input to the vibration

code to be in accordance with NRC requirements.

These Notices have been admitted to the record by ALJ ruling.28

2. Procedural History

Pursuant to § 455.5, the Commission issued an OII on October 25, 2012,

initiating a multi-part investigation into the actions and expenses of Utilities

associated with the extended outage at SONGS:

This investigation will consider the causes of the outages, the utilities’ responses, the future of the SONGS units, and the resulting effects on the provision of safe and reliable electric service at just and reasonable rates.29

25 Administrative Law Judges’ Ruling Taking Official Notice of Documents and Addressing Various Motions (September 11, 2014) at 4.

26 October 17, 2013 Mitsubishi reply to NRC (incorporated by reference in November 27, 2013 NNC to Mitsubishi) at 2.

27 Ibid.

28 Ibid., Notice of Non-Conformance to Mitsubishi (November 27, 2013) and Notice of Violation to SCE (December 23, 2013).

29 OII at 21.


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The OII identified rate recovery issues including: (1) review of all post

2011 Operations & Maintenance (O&M) costs and capital spending; (2) costs of

scheduled RFO and emergent activities; (3) removal of non-useful generation

assets from rate base; and (4) various questions around the costs, viability, and

prudency of the SGRP approved in D.05-12-040.

SCE and SDG&E were ordered to separately record all SONGS-related

expenses, beginning as of January 1, 2012, into a SONGS outage memorandum

account (SONGSOMA),30 subject to refund, and report the expenses to the

Commission on a regular basis.31 The Commission later confirmed the order in

the decision on each utility’s GRC application.32

Within the OII, the Commission stated its intention to consolidate other

future proceedings to encompass review of the full range of post-outage costs

and activities.33 Subsequently, SCE and SDG&E each filed applications for

reasonableness review of 2012 recorded O&M, non-O&M costs, and capital

spending,34 for approval of the totality of the SGRP costs,35 and for power

30 I.12-10-013 at 10-13 and OP 4. The SONGSOMA is different than SCE’s SONGS Memorandum Account (SONGSMA) authorized by D.12-11-051 and SDG&E’s SONGS Balancing Account (SONGSBA) created by D.06-11-026 and most recently reauthorized by D.13-05-010.

31 SCE reports to the Commission monthly on its SONGSOMA and SDG&E reports on its SONGSOMA quarterly.

32 D.12-11-051 at Findings of Fact (FOF) 366, Conclusions of Law (COL) 21-22, OP 9, 10 (SCE); D.13-05-010 at FOF 19, COL 7, 8 (SDG&E).

33 OII at 8-9.

34 A.13-01-016 (SCE), A.13-03-013 (SDG&E).

35 A.13-03-005 (SCE), A.13-03-014 (SDG&E).


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purchased during 2012, including replacement of power lost due to the outages.36

In these applications, the Utilities sought full recovery in rates for all of the

identified expenses.

The Utilities served Opening Testimony on December 5, 2012, in response

to the broad scope of the OII. On December 12, 2012, the ALJ ordered the

utilities to provide supplemental testimony, inter alia, regarding SONGS: outage

history, historic forecast and actual expenses, 2012 treatment of fuel contracts,

reasonableness support for 2012 recorded expenses, calculation of replacement

power costs, support for meeting a reasonable or prudent manager standard

post-outage, and for production of reports from NRC and others addressing the

cause of the outage. Other parties had an opportunity to serve reply testimony,

and the Utilities were permitted to serve rebuttal.

A prehearing conference (PHC) was held on January 12, 2013. Due to the

potentially wide scope and quantity of information necessary for review, the

assigned Commissioner and ALJ determined that to promote efficient

administration of the OII, it would be divided into several phases, each with its

own PHC and Scoping Memo. Among the expected benefits of this approach

were: (i) resolving the hold-over 2012-2014 revenue requirement first;

(ii) building a chronological record of 2012 activities to inform the second phase

determination of whether to remove some or all of SONGS plant from rate base;

(iii) pacing for certain information not yet known (e.g., pending NRC actions,

Mitsubishi arbitration, insurance claims); and (iv) consistent decisions between

phases.

36 A.13-04-001 (SCE), A.13-03-013 (SDG&E).


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On January 28, 2013 assigned Commissioner Michel Peter Florio and

ALJ Melanie M. Darling37 issued a Phase 1 scoping memo that set dates for

parties to serve testimony, established dates for evidentiary hearings, and

defined the scope of inquiry. In Phase 1, the Commission focused on the

Utilities’ applications38 for review of 2012 expenses recorded in the SONGS

memorandum accounts, including an assessment of the reasonableness of SCE’s

actions and expenditures following the U3 steam generator leak. On May 3,

2013, the ALJs created a sub-phase, Phase 1A, to develop a method for

calculating 2012 costs of replacement power.

In response to the OII, the Utilities argued the Commission lacked

authority to (1) review and refund 2012 estimates of O&M and capital spending,

as deferred by the GRC decision; and (2) remove any SONGS assets and

associated O&M from rate base pursuant to § 455.5, prior to SCE’s 2015 GRC.

After parties briefed these legal issues, the Assigned Commissioner and

Administrative Law Judge issued a ruling resolving the questions:39

(1) Regarding Phase 1, the Commission has legal authority to conduct the deferred final reasonableness review of SONGS-related expenses (100%) sought in SCE’s 2012 GRC and immediately order refunds, if warranted.

(2) Regarding Phase 2, the Commission has authority pursuant to § 455.5 to remove SONGS assets and associated expenses from rate base in this consolidated proceeding which has been categorized as ratesetting.

37 On May 1, 2013, ALJ Kevin Dudney was co-assigned to the OII.

38 These proceedings were consolidated with the OII in an April 19, 2013 ALJ ruling.

39 Assigned Commissioner and Administrative Law Judge Ruling on Legal Matters (April 30, 2013)


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Several parties participated in Phase 1 and Phase 1A by submitting

testimony, conducting cross-examination of witnesses, and/or filing post-

hearing briefs. In addition to SCE and SDG&E, these parties are Office of

Ratepayer Advocates40 (ORA), The Utility Reform Network (TURN), Alliance for

Nuclear Responsibility (A4NR), World Business Academy (WBA), Women’s

Energy Matters (WEM), Joint Parties (comprised of National Asian American

Coalition, Ecumenical Center for Black Church Studies, Latino Business Chamber

of Greater Los Angeles and Chinese American Institute for Empowerment), and

the Coalition to Decommission San Onofre (CDSO).41

Ruth Henricks (Henricks) and other parties filed several, primarily

procedural, motions during the Phase 1 period. Motions to alter the Scoping

Memo, to immediately order refunds, strike testimony, etc. have been filed and

ruled upon, none of which altered the course of the OII set forth in the Scoping

Memo, except to clarify that ordinary review of power purchases by both

Utilities would continue to occur in their respective Energy Resource Recovery

Account (ERRA) proceedings.

On February 21, 2013, the ALJ ordered SCE to file its SGRP application by

March 15, 2013, and to provide supplemental testimony regarding interim

collection of SGRP costs in rates, calculation of the SGRP revenue requirement,

and to explain some aspects of SCE’s first SONGSMA report. Other parties had

40 Formerly known as Division of Ratepayer Advocates (ORA) and filed as such during these proceedings.

41 Other entities which were granted party status in the OII and participated at some point are : Friends of the Earth (FOE), (CLECA)Direct Access Customer Coalition jointly with the Alliance for Retail Energy Markets (DACC/AReM). Several other parties did not participate in these proceedings.


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an opportunity to serve reply testimony, and the Utilities were permitted to

serve rebuttal. On April 30, 2013, the ALJs ordered SCE to collect and

summarize relevant cost data which appeared throughout their testimony, and

to create a chronology of key operational facts and decisions related to the

outage. Even though no new information was to be included in the reorganized

SCE exhibit, other parties had an opportunity to submit rebuttal exhibits.42

Evidentiary hearings in Phase 1 were held from May 13 to 17, 2013.

Opening and Reply Briefs were filed by SCE, SDG&E, DRA, TURN, A4NR,

WBA, CDSO, Joint Parties and WEM on June 28, 2013 and July 9, 2013,

respectively. Evidentiary hearings in Phase 1A were held on August 5 and 6,

2013. Opening Briefs were filed on August 29, 2013 by SCE, SDG&E, DRA, and

A4NR. Phase 1A Reply Briefs were filed by SCE, SDG&E, TURN, A4NR, DRA,

and WEM.

In addition, the ALJs sought input about the OII issues from the public

during 2013. They held four public participation hearings regarding the SONGS

outages: two in Costa Mesa on February 21, 2013 and two in San Diego on

October 1, 2013.

A proposed decision (PD) for Phase 1 was published for comment on

November 19, 2013. Opening Comments were filed on December 9, 2013 by

WEM, CDSO, Joint Parties, SCE, TURN, CCUE, SDG&E, WBA, and A4NR.

Reply Comments were filed on December 16, 2013 by SCE, SDG&E, TURN, DRA,

42 The ruling merely ordered a more coherent presentation of previously served, and revised, cost data, not any new information. However, some corrections were made on the record to the proffered exhibit, SCE-10.


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Joint Parties, WBA, and A4NR. However, the Commission has not acted on the

PD. 43

Regarding Phase 2, the ALJs ordered the Utilities to provide testimony by

July 22, 2013 that provided an accounting of the assets and amounts currently in

rate base for the entire SONGS facility.44 The ruling also required each utility to

make a proposal for which assets should be removed from rate base, and related

monthly O&M costs, as of November 1, 2012, and other dates as preferred.

A PHC for Phase 2 occurred on July 12, 2013. Based on § 455.5, the Phase 2

Scoping Memo focused on the value of SONGS assets in rate base at different

points in time, which of these assets and associated costs should be removed

from rate base, and the ratemaking treatment for removed assets and costs.45

Phase 2 evidentiary hearings were held October 7 to 11, 2013. Phase 2

Opening Briefs were filed and served on November 22, 2013 by SCE, SDG&E,

ORA, TURN, A4NR, WBA, CDSO, WEM, and Henricks.46 Reply Briefs were

filed and served on December 13, 2013 by SCE, SDG&E, DRA, TURN, ANR,

WBA, CDSO, and DACC/AReM. No PD for phase 2 has yet been published for

comment. A list of the exhibits admitted into the record during Phases 1, 1A,

and 2 is attached hereto as Appendix A.

43 On January 14, 2014, four Commissioners (Peevey, Florio, Sandoval, Peterman) participated in a noticed all-party meeting to discuss the PD.

44 ALJ Ruling on Miscellaneous Issues and Setting Phase 2 prehearing Conference (July 1, 2013).

45 Assigned Commissioner and Administrative Law Judges’ Ruling Determining Phase 2 Scope and Schedule (July 31, 2013).

46 WBA (on November 22) and CDSO (on November 27) filed and served “corrected” Phase 2 opening briefs; all references to WBA’s and CDSO’s opening briefs in this decision refer to these corrected briefs.


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Through many weeks of evidentiary hearings, and review of a substantial

amount of testimony and other evidence, the parties have had an opportunity to

weigh the claimed facts associated with: (1) the deferred review of 2012 General

Rate Case SONGS-related expenses; (2) replacement power costs; and (3) the

values of SONGS assets in rate base; and (4) which of these assets should be

removed from rate base pursuant to Public Utilities Code § 455.5.

On March 20, 2014, SCE, SDG&E, TURN, and ORA served a notice of

settlement conference to be held on March 27, 2014. On April 3, 2014, SCE,

SDG&E, TURN, ORA, FOE, and California Coalition of Utility Employees

(CCUE) (collectively, Settling Parties) filed and served a Joint Motion for

Adoption of Settlement (Joint Motion). Settling Parties assert the proposed

Settlement Agreement (Agreement), if approved, “would resolve all issues in the

OII and consolidated proceedings.”47 It is not an all-party settlement, and is

strongly opposed by some.

On April 24, 2014, the ALJs issued a ruling that: (1) ordered Settling

Parties to post documents supporting or clarifying the Agreement on SCE’s

SONGS discovery website; (2) ordered Settling Parties to serve supporting

testimony by May 1, 2014 to provide clarifying information, and support for

certain numbers referenced in the Agreement in response to questions posed by

the ALJs in the ruling; (3) scheduled and set the agenda for an evidentiary

hearing pursuant to Rule 12.3 to hear material contested issues of fact asserted in

the Agreement; and (4) scheduled and set the agenda for a community



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information meeting near SONGS on June 16, 2014.48 Settling Parties, jointly and

separately, timely served the supplemental testimony.

On May 7, 2014 (or earlier), comments on the Joint Motion were filed by

WBA, CDSO, Joint Parties, A4NR, CCUE, CLECA, DACC/AReM, WEM, and

Henricks.49 On May 14, 2014, the ALJs conducted the evidentiary hearing, took

submission of the supplemental testimony, heard sworn oral testimony from

Settling Parties and permitted cross-examination of the Settling Parties’ witnesses

by non-settling parties.50 A list of the exhibits admitted into the record at the

hearing on the Agreement is included in Appendix A. On May 22, 2014, Reply

Comments on the Joint Motion were filed by Henricks, Joint Parties, Settling

Parties, SCE, CDSO, SDG&E, A4NR, and WEM.

As part of her Reply Comments, Henricks included a request that ALJ

Darling be reassigned pursuant to Rule 9.4 based on ”demonstrated bias in favor

of SCE and prejudice against ratepayers in this case.” Henricks objected to

introductory statements made by ALJ Darling at the evidentiary hearing for the

benefit of webcast viewers. The Chief ALJ, in consultation with the President of

the Commission, denied the motion based on Rule 9.5 which expressly finds it is

not bias for an ALJ to express views on a legal, factual, or policy issue presented

in the proceeding.51

48 Commissioners Peevey, Florio, and Picker attended the scheduled Community Information Meeting on June 16, 2014 as observers.

49 Henricks filed an “Objection” which Docket Office characterized as “comments.”

50 Commissioners Peevey and Florio attended the hearing as observers.

51 Chief Administrative Law Judge’s Ruling denying request for Reassignment for Cause (June 26, 2014).


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On September 5, 2014, the assigned Commissioner and the ALJs issued a

Ruling Requesting the Settling Parties to Adopt Modifications (Modification

Ruling) to the proposed Settlement Agreement. The request was based on a

preliminary assessment which identified a few provisions that needed to be

clarified or modified to meet the public interest even when considered as part of

the whole settlement package. The Settling Parties dispute the view that the

identified provisions are not in the public interest, however, they voluntarily

accepted the requests and amended and restated the Agreement to accomplish

our public interest objective.52 Several non-settling Parties filed comments ten

days later confirming their continued opposition. On September 24, 2014, the

Settling Parties filed and served an “Amended and Restated Settlement

Agreement” (Amended Agreement) which included the requested modifications.

This proceeding was submitted on September 24, 2014

3. Standard of Review

The Commission’s standard of review for this contested settlement

pursuant to Rule 12.1(d) is that the Commission must find a settlement

“reasonable in light of the whole record, consistent with the law, and in the

public interest.” The standard of proof is a preponderance of the evidence.53

In determining whether a settlement is fair, adequate, and reasonable, the

Commission reviews a number of factors. These factors include whether the

settlement reflects the risks, expense, complexity, and likely duration of further

litigation; whether it fairly and reasonably resolves the disputed issues and

52 Joint Settling Parties Comments on Modification Ruling.

53 D.13-04-012 at 3.


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conserves public and private resources; and whether the agreed-upon terms fall

clearly within the range of possible outcomes had the parties fully litigated the

dispute.54 The Commission also has considered factors such as whether the

settlement negotiations were at arm's length, whether the parties were

adequately represented, and how far the proceedings had progressed when the

parties settled.55

Below we review the settlement provisions, and the parties’ arguments in

support and in opposition.

4. The Settlement Agreement

4.1. Joint Motion to Adopt Settlement Agreement

Settling Parties present the Agreement as a fair compromise of contested

issues which resolves all issues in the consolidated proceedings, duly authorized

by Article 12 of the Commission’s Rules of Practice and Procedure.56 The Joint

Motion includes the general positions advocated by the parties in the OII, the

terms of the Agreement, argument that the Agreement meets the Commission’s

standards for review of settlements, proposes a process for consideration of the

Agreement, including possible Commission-proposed modifications, and

requests the Commission expedite consideration, stay the OII and make specific

findings with respect to the Agreement.

The Settling Parties assert the Agreement is the result of “hard-fought”

negotiations over many months by SCE, SDG&E, DRA and TURN where each

party “compromised substantially” from positions taken in testimony and

54 D.96-05-070, 66 C.P.U.C. 2d 314, 317 (1996).

55 D.00-11-041 at 6.

56 Joint Motion at 1-2.


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briefs.57 Although CCUE, which represents utility employees, and FOE, an

environmental organization, did not participate in the negotiations prior to the

Settlement Conference, each joined in the Agreement, contending it is a “fair

compromise of the disputed issues.”58 The Settling Parties state the combination

of Utilities, DRA, TURN, FOE and CCUE represents a broad coalition of interests

represented in the OII.

However, Rule 12.1(a) provides that settlements need not be joined by all

parties. This is not an all-party settlement. As discussed below, some parties ask

the Commission to deny the motion and reject the Agreement.

4.2. Terms of Settlement Agreement

Generally, the Agreement divides costs from certain categories (e.g. O&M,

capital cost of RSGs) into different categories for payment (e.g. refunds to

ratepayers, allowed past or current rate recoveries, future rate recoveries). The

Settling Parties responded to the September 5, 2014 Ruling Requesting

Modifications by preparing and serving an Amended and Restated Settlement

Agreement (Amended Agreement) incorporating the requested changes. The

Amended Agreement is attached hereto as Appendix B.

a. Steam Generator Replacement Project

¶4.2 specifies that the “Capital-Related Revenue Requirement for the

SGRP will be terminated as of February 1, 2012.” The Utilities will refund all

Capital-Related Revenue Requirement59 of the SGRP collected after that date, but

will retain all amounts collected in rates prior to that date. The Utilities will not

57 Id. at 8.

58 Ibid.

59 Defined in Agreement ¶2.9.


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recover the Net Book Value60 of the SGRP as of that date, which is $597 million

for SCE and $160.4 million for SDG&E according to ¶3.36.

b. Base Plant

¶4.3 specifies that the Utilities share of Base Plant61 will be removed from

rate base as of February 1, 2012, and this amount will be recovered at a reduced

rate of return over ten years (February 1, 2012 to February 1, 2022). As of

February 1, 2012 SCE’s share of Base Plant was $622 million and SDG&E’s share

was $165.6 million, excluding Construction Work in Progress (CWIP).62 The

Utilities will retain all Capital-Related Revenue Requirement for Base Plant

collected before February 1, 2012; amounts collected after that date that exceed

what would be allowed by the Agreement will be returned.63 The rate of return

for Base Plant after February 1, 2012 will be calculated as “the Utility’s

Authorized Cost of Debt plus 50% of the Utility’s Authorized Cost of Preferred

Stock, weighted by the amount of debt and preferred stock in the Utility’s

authorized ratemaking capital structure.”64 The rate of return for SCE for 2012 is

2.95% and 2.62% for 2013-2014. For SDG&E, the rate of return for 2012 is 2.75%

and 2.35% for 2013-2014.65 Finally, ¶4.4 provides that each Utility would be

60 Agreement ¶2.24.

61 Agreement ¶2.6.



64 These Authorized Cost terms are defined in Agreement ¶¶2.4 and 2.5. This rate of return is adjusted for deferred taxes. The rate of return on common equity is excluded from the calculation.

65 In both cases, these rates of return do not reflect income taxes associated with the return on preferred equity, property taxes, or franchise fees and uncollectibles; each Utility would gross-up its revenue requirement accordingly.


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allowed to exclude the Base Plant regulatory asset from future measurements of

its ratemaking capital structure.

c. Materials and Supplies (M&S), Construction Work In Progress (CWIP), and Nuclear Fuel

M&S, CWIP, and Nuclear Fuel are all recovered in a manner similar to

Base Plant, with some variations. For M&S and Nuclear Fuel, the Utilities

receive an incentive (5%) to salvage the value of the asset as best as possible. For

CWIP, the recovery period depends on whether or not the project is completed

and goes into service. Details are summarized in the following table.


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Item Amortization Period

Rate of Return

Dollar Amount (12/31/2013) 5% Incentive Notes

References (Agreement Section)

M&S Same as base plant

Same as base plant

SCE: $99 million; SDG&E: $10.4 million Yes

4.5, 4.13, 2.21, 3.39

Nuclear Fuel

Same as base plant

Commercial paper

SCE: $477 million; SDG&E: $115.8 million inventory (excludes cancellation and sales)

Yes, of net proceeds (proceeds less cost of storage, sale, and making fuel saleable), AND of purchase obligations minus cancellation costs

Amount recovered will be existing investment plus cancellation cost, less proceeds from sales

4.6, 4.7, 4.13, 2.17, 2.18, 2.30, 3.38

CWIP - Cancelled

Same as base plant

AFUDC until 1/31/2012then same as base plant

SCE: $153 million; SDG&E: unstated no

4.8, 4.13, 2.13(a), 3.40

CWIP - Completed

Starting the earlier of project completion or the end of the month of the effective date of this decision, and ending 2/1/2022

AFUDC until amoritization begins. AFUDC rate as authorized until 1/31/2012then same as base plant. During amortization, same return as base plant.

SCE: $302 million; SDG&E unstated no

4.8, 4.13, 2.13(b), 3.41


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d. O&M and Non-O&M Expenses

Under the agreement, the Utilities will generally recover the lower of their

recorded or preliminarily authorized66 expenses. Costs for inspections and

repair of the RSGs are included in recorded O&M, distinguished from “Base” or

routine O&M. Excess recoveries, or amounts later recovered from the Nuclear

Decommissioning Trusts will be refunded to ratepayers. 2014 costs are subject to

review by this Commission in the future. ¶4.9 (k) specifies that the “Utilities

shall utilize a formula agreeable to all Settling Parties for allocating

company-wide expenses to SONGS” for purposes of Non-O&M Expenses.

Details are provided in the following table.

Item Year Recovery

O&M 2012 Retain revenue provisionally authorized; revenue can be applied to recorded O&M (Base and SGIR) and severance; SDG&E to refund any revenues beyond recorded O&M

O&M 2013 Recover recorded costs up to the provisionally authorized amounts; any excess recoveries or amounts recovered from the decommissioning trusts to be refunded

Non-O&M 2012 Retain all revenue, except that SCE will refund to ratepayers any revenues that exceed the provisional authorization by more than $10 million; SDG&E will retain revenue for all recorded Non-O&M Expenses

Non-O&M 2013 All recorded expenses recovered; Utilities shall seek recovery from decommissioning trusts, and refund such recoveries

O&M and Non-O&M

2014 Recover recorded, refund excess recoveries and any recoveries from decommissioning trusts

e. Replacement Power

¶4.10 allows the Utilities to recover all “replacement power costs”

associated with the non-operation of SONGS and amortize these costs in rates by

December 31, 2015.

f. Third Party Recoveries

66 By the previous GRC decisions: D.12-11-051 and D.13-05-010.


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As modified by the Amended Agreement, ¶4.11 orders each utility to

establish two memorandum accounts (or sub-accounts) to track SONGS litigation

costs and recoveries67 from NEIL and Mitsubishi. The accounts will track all

costs recorded since January 31, 2012. Any negative balance of these accounts

(i.e. Recoveries in Excess of Costs) will be shared between ratepayers and the

Utilities according to ¶4.11 (c). For NEIL recovery: the Utilities’ share is 5% and

95% to rate payers in the Outage account; the Utilities’ share is 17.5%, with 82.5%

to ratepayers in the Other Recoveries account. Ratepayers will receive their

share via a credit to each Utility’s ERRA account.

The original Agreement provided for a three-tiered allocation of recoveries

from Mitsubishi with the Utilities getting a significant majority of the first

$1.1 billion. As modified, the ratepayers and Utilities share the net Mitsubishi

recoveries equally (50/50).

The first portion of Mitsubishi recoveries will be distributed to balancing

accounts of the Utilities: SCE ratepayers’ first $282 million will be credited to

SCE’s Base Revenue Requirement Balancing Account and SDG&E ratepayers’

first $71 million will be credited to SDG&E’s Non-Fuel Generation Balancing

Account. Any further ratepayer recoveries will be distributed by reducing the

regulatory assets described above.

The Utilities will have full discretion to settle or otherwise resolve claims

against NEIL and Mitsubishi, and will notify the Commission promptly of such

resolution, subject to two conditions: the confidentiality of the resolution and

that the Commission will not review the reasonableness of the resolution; except

67 See: Agreement ¶2.43-2.44 for definitions.


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that, the Amended Agreement requires the Utilities to provide documentation of

any final resolution of third-party litigation and of SONGS Litigation Costs. The

Commission may review the documentation to ensure Litigation Costs are not

out of proportion to the recovery obtained and that ratepayer credits are

accurately calculated. SONGS Litigation Costs shall not be considered in the

recorded costs used to develop future general rate case forecasts.

Close Proceeding and Proposed Findings of Fact

¶4.16 and ¶4.17 state the intent of the Agreement to resolve all

proceedings consolidated with this Investigation, enumerate several factual

findings for the CPUC to make, and request the withdrawal of the PD on Phase 1

and Phase 1A. The proposed findings are summarized below:

Proceeding(s) Findings

A.13-03-005, A.13-03-014

Total cost of SGRP was $612.1 million in 2004 dollars (100% share). SCE used appropriate inflation indexes to deflate these costs to 2004 dollars. No further reasonableness review of SGRP costs is required, and each Utility may retain all revenues for the SGRP prior to February 1, 2012.

A.13-01-016, A.13-03-013

No further reasonableness review of the 2012 costs recorded in SCE’s SONGSMA and SDG&E’s SONGSBA is required.


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5. Parties’ Positions

5.1. Settling parties

Settling Parties contend the proposed Agreement meets the Commission’s

requirements for approval: it is consistent with the law, reasonable in light of the

whole record, and in the public interest. The Joint Motion also identifies four

factors the Commission has included when previously reviewing settlements:

(1) the risk, expense, complexity and likely duration of further litigation;

(2) whether the settlement negotiations were at arms-length; (3) whether major

issues were addressed; and (4) whether the parties were adequately

represented.68

In support of approval, Settling Parties assert “[T]he Utilities, TURN, and

ORA---represented by experienced CPUC practitioners---negotiated in good

faith, bargained aggressively, and, ultimately, compromised.69” Furthermore,

they argue, the result is a comprehensive resolution of all major issues, which

reduces ratepayer costs for protracted litigation, conserves scarce Commission

resources, and reduces the risk of unacceptable results.

Additionally, the Settling Parties assert it is “critical” to consider the

Agreement as a whole, not just the individual provisions.70

68 Joint Motion at 36 [citing e.g., 40 CPUC 2nd 301, 326].

69 Ibid.

70 Id. at 36-37 [citing, D.11-05-018 at 16 (…we do not base our conclusion on whether any single provision is the optimal result. Rather, we determine whether the settlement as a whole produces a just and reasonable outcome.”)].


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5.1.1. The Agreement is Reasonable in Light of the Whole Record

The Agreement is reasonable in light of the whole record, Settling Parties

argue, because on “a basic level” ratepayers pay for power they received and

don’t pay for the SGRP after the outages.71 The result is presented as a fair and

reasonable solution, reached as a result of substantial negotiations, and is within

the range of potential outcomes proposed by the Settling Parties during the OII.

Settling Parties assert the record contains sufficient information for the

Commission to make this finding, given the thousands of pages of written

testimony on a wide range of issues, from many different witnesses, covered by

three phases of hearings over 12 days, with lengthy post-hearing briefs filed by

the Settling Parties. The Utilities separately note they have already responded to

over a thousand data requests from the parties.72 Settling Parties claim the

magnitude of information and depth of analysis in the record underpinned the

success of the substantial negotiations undertaken by the Utilities, TURN and

ORA.

Settling Parties claim the negotiated outcomes of various provisions in the

Agreement, including recoveries and disallowances, demonstrate that

compromises were reached for thoroughly litigated positions.73 On the other

hand, they claim that potential Phase 3 findings on the causes of tube wear and

SCE’s prudence in managing the SGRP are unnecessary to find the Agreement is

reasonable in light of the whole record. Instead, they argue the primary purpose


72 Id. at 37.

73 Ibid.


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of this settlement is to avoid the costs, time, and burden on all parties to get to

the cause of the damage and reasonableness of consequential costs.

Lastly, Settling Parties state the Agreement reflects a fair resolution of their

respective litigation positions. In support, they provide an illustrative

comparison of the present value of the SONGS revenue requirement for each

settling party’s litigation position with the results of the proposed Agreement.74

The reduction to the Utilities’ original revenue requirements indicates significant

concessions which, according to Settling Parties, reflects write-offs of more than

$800 million ($nominal) in SGRP-related costs after January 31, 2012.75

CCUE offered additional comments in which it stated its support for the

Agreement was primarily based on treatment of 2012-2013 O&M costs,

particularly severance costs because they argue staff retention was necessary to

operate plant equipment when restart was still a possibility.76

In an attachment to the original agreement, Settling Parties included an

estimate of the Present Value Revenue Requirement (PVRR) for each Utility

based on the litigation positions of the Utilities, DRA, and TURN, in comparison

to the outcome under the Agreement. The table below shows an excerpt of this

PVRR, as updated in exhibits SCE-56 and SDGE-23, with the combined revenue

requirements of the two Utilities. Note that the PVRR is calculated at a discount

rate of 10%.

74 Id., Attachment 2.

75 Id. at 39.

76 CCUE Opening Comments (OC) at 2-3.


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SCE and SDG&E All values in $ millions

TURN Litigation DRA Litigation Settlement

Utilities Litigation

PVRR @ 10% $ 2,692.5 $ 2,542.9 $ 3,284.5 $ 4,732.9

RSG $ - $ 100.9 $ - $ 917.7

Base Plant $ 1,127.3 $ 908.9 $ 1,319.4 $ 1,738.5

O&M $ 900.5 $ 868.5 $ 970.6 $ 1,039.6

Nuclear Fuel $ 520.0 $ 519.9 $ 477.3 $ 519.9

Replacement Power $ 144.7 $ 144.7 $ 517.2 $ 517.2

5.1.2. The Agreement is Consistent with the Law

Settling Parties state the terms of the Agreement comply with all

applicable statutes and prior Commission decisions, and assert they considered

these statutes and decisions during the settlement process.77 In particular,

Settling Parties claim the Agreement is consistent with § 451 and § 455.5.

Section 455.5, authorizes the Commission to remove from rate base the

value of portions of a generating facility that has been out of service for nine or

more months, along with related expenses. Settling Parties believe the

Agreement is consistent with applicable law because the SGRP and SONGS Base

Plant are removed from rate base as of February 1, 2012, and $99 million in post-

outage RSG inspection and repair costs are disallowed.78

Section 451 requires that rates be just and reasonable. Settling Parties,

referencing the revenue requirement comparison chart attached to the Joint

Motion, claim the terms are just and reasonable because the parties have

compromised their positions.


78 Id. at 39-40.


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5.1.3. The Agreement is in the Public Interest

The Commission has previously determined that a settlement meets the

“public interest” criterion if it “commands broad support among participants

fairly reflective of the affected interests” and “does not contain terms which

contravene statutory provisions or prior Commission decisions.”79 Settling

Parties cite the fact they are comprised of both utilities, two “prominent

ratepayer advocate groups in Commission practice, a global network of

environmental activists, and a labor group representing hundreds of affected

SONGS employees;” these parties all participated in the OII prior to the

Agreement. 80 ORA and TURN were especially active in all phases of the

consolidated proceedings to date. Settling Parties emphasize that all signatories

to the Agreement have stated it is a reasonable compromise of their respective

positions.

Settling Parties argue the public interest is also served by settlement of the

entire OII because, if adopted, it avoids the cost of further litigation and frees up

Commission resources for other proceedings.81 They view the potential Phase 3

as extremely time-consuming and complex litigation, potentially taking a year or

two, delaying refunds, and generating discovery relating to a ten year period and

thousands more pages of largely technical testimony. Instead, Settling Parties

contend the Agreement provides “substantial relief to ratepayers” by eliminating

the need for more litigation and freeing the Commission and other parties to

79 Joint Motion at 40 [citing e.g., D.10-06-015 at 11-12].

80 Id. at 40.

81 Id. at 41.


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concentrate limited resources on other pressing energy-related matters, including

meeting Southern California’s energy needs in the near future.82

5.2. Other parties

With one exception (CLECA), parties who did not join the Agreement, are

basically divided between: (1) those who do not generally oppose the settlement,

but prefer some modifications, and (2) those who oppose the Agreement and

prefer the Commission undertake Phase 3 to confirm SCE’s fault for approval of

the RSG design, as well as explore a variety of other questions each seeks to have

answered. One party, Henricks, alleges there must be “collusion” among the

Utilities, Settling Parties, Commissioners, and the ALJs for a settlement to occur at

this time which would obviate the need for a Phase 3 inquiry into the RSG design

decisions.

5.2.1. Parties Not Opposed to the Settlement Agreement

5.2.1.1. CLECA

CLECA, who became a party in time to weigh in on the Agreement, offers

essentially unqualified support, finding it “reasonable and balanced between

ratepayer and shareholder interests” including a reasonable “bottom line.”83

They agree with Settling Parties that the Commission has historically supported

qualifying settlements in order to reduce the litigation burden on parties and the

Commission.84

In addition, CLECA appreciates the diversity of Settling Parties, including

utilities, ratepayer advocates, environmental, and labor parties. Of significance

82 Id. at 41-42.

83 CLECA OC at 1.

84 Id. at 2.


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to CLECA, the overall result is closer to TURN’s litigation position than that of

the Utilities.

5.2.1.2. AReM/DACC

AReM and DACC find the Agreement to be a reasonable resolution of this

proceeding and do not oppose its adoption by the Commission. These parties

filed joint comments stating their primary interest is the fair and equitable

treatment of direct access (DA) ratepayers in light of the closure, especially as to

how the costs and refunds authorized by an adopted settlement will be

implemented in rates, and in particular, the Power Charge Indifference Amount

(PCIA).85

AReM and DACC claim the inclusion of the ongoing full SONGS revenue

requirement in the calculation of the PCIA rate, without accounting for the lost

SONGS generation, results in extraordinary increases to the 2014 PCIA. They

wish to ensure that these increases do not continue and that the implementation

of the Agreement does not cause an unfair burden to fall on DA ratepayers.86

Their second concern is the rate treatment of the Replacement Power costs.

According to AReM and DACC, these amounts were for short-term purchases

made only on behalf of bundled customers--–not on behalf of DA customers.

Thus, these replacement purchases cannot and should not be included in the

Total Portfolio Amount used to calculate the PCIA.87

Therefore, they recommend the Commission specifically direct the Utilities

to: 1) utilize the provisions of the Consensus Protocol when implementing the

85 AReM/DACC OC at 2.

86 Ibid.

87 Id.at 3.


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rate adjustments associated with the Settlement; and 2) omit the short-term

SONGS replacement costs from any Total Portfolio Costs.

5.2.1.3. Joint Parties

Joint Parties were generally supportive of the Agreement, finding it

“reasonable and fair” and the result of “protracted and difficult negotiations.”88

Joint Parties are very supportive of the Commission’s modifications and believe

they are in the public interest and are consistent with long-standing precedents

favoring settlements, including settlements where the hearings have not been

completed.89 However, they seek a modification related to community outreach

and education efforts in service areas near SONGS, an issue advanced by Joint

Parties throughout Phase 1 of the consolidated OII proceedings.

Joint Parties reiterate their request that SCE be required to expand its

public education about SONGS and the future decommissioning, beyond the

20-mile designated public education zone to 50 miles.90 In addition, they ask the

Commission to “be particularly sensitive to pockets of alternative language users

and coordinate with community based organizations to ensure wide distribution

of public information and availability of emergency planning information.”91

Second, Joint Parties were initially concerned that current third-party

recovery provisions were not structured to properly incentivize the recovery of

88 Joint Parties OC at 2.

89 Joint Parties’ Comments on Modification Ruling at 1.

90 Joint Parties OC at 2-3.

91 Id. at 3.


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funds from Mitsubishi and NEIL. However, the modifications to ratepayer share

of the recoveries seems to abate that objection.92

5.2.1.4. World Business Academy (WBA)

WBA generally supports the Agreement, but voices a few concerns. WBA

initiated settlement discussions with SCE in February 2012 when its President93

requested a meeting with SCE representatives to present WBA’s “Settlement

Principles,” a set of nine concepts which WBA viewed as the basis for a fair and

equitable settlement. According to WBA, the proposed Agreement in large part

reflects these settlement principles.94

These principles include:

SCE should not collect money for power not delivered by SONGS;

SCE should be able to recover the actual costs of power purchased to replace lost SONGS output;

Ratepayers should not pay the costs of amortizing undepreciated value of SONGS base plant after June 7, 2013;

SCE should be allowed to keep SGRP costs recovered in rates through January 31, 2012;

SCE should be allowed to retain recorded labor costs through June 7, 2013, and associated with gradual lay-off for 90 days thereafter; and

Ratepayers should pay for CWIP plant upgrades to extent equipment or systems were put into service before January 31, 2102 and incurred by June 7, 2013.

92 Joint Parties’ Comments on Modification Ruling at 3.

93 WBA’s President is Rinaldo S. Brutoco.

94 WBA OC at 3.


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Although the Agreement does not achieve all of WBA’s objectives in the

OII, WBA believes the Agreement will resolve key issues of dispute between

parties and bring a “much needed resolution of the contested claims” when

adopted in a final form.95 Nonetheless, WBA asks the Commission to carefully

consider issues raised by non-settling parties. To improve transparency, WBA

also suggests it would be in the best interests of ratepayers to provide a table in

this decision which clearly illustrates the components of the proposed refund to

ratepayers.96

Additionally, WBA identifies what it calls “overly-broad or unnecessary

language” which it suggests be deleted from the Agreement because such

language may not be fully supported by the record. Three examples are

provided: (1) delete the word “unexpected” from ¶3.8, which states, in part, that

the tube wear (discovered in February 2012) “caused unexpected and extensive

property damage to” RSGs; (2) delete ¶3.9 which refers to inspections in

February and March 2012 of U3 RSGs and similarly states the tube-to-tube wear

“caused unexpected and extensive property damage….;” and (3) delete all but

the first sentence of ¶3.23 (describes SCE’s grievances with Mitsubishi’s

performance.)97

5.2.2. Parties Opposed to the Settlement Agreement

5.2.2.1. Alliance for Nuclear Responsibility

The modifications adopted by the Settling Parties did not alter A4NR’s

95 Id. at 1.

96 WBA OC at 2.

97 Id. at 2-3.


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Objections to the settlement. A4NR’s Comments were primarily a restatement of

its views opposing the proposed settlement. Although the modifications

included a program response to A4NR’s criticism that the settlement did not

address “externalities,” A4NR expresses “disappointment with the Ruling’s

timid consideration of the shutdown’s impact on CO2 emissions and electricity

prices.”98

A4NR urges the Commission to reject the Joint Motion, not adopt the

proposed settlement, and to make a counter proposal to resolve the OII.

Although A4NR says it supports the core framework of the Agreement as it

relates to removal of assets from rate base, and reduced return for Base Plant

assets only, it argues for conduct of Phase 3 based on a conclusion that SCE was

imprudent in managing the SGRP and is liable for all consequential damages.

As a result, A4NR states Phase 3 should consist only of fashioning remedies for

SCE’s imprudence.

During the proceedings, A4NR has consistently rejected rate recovery for

any post-outage SONGS-related expenses. As soon as SCE became aware of the

extent of vibratory damage to the steam generator tubes in both units, A4NR

argues that SCE should have decided to shut down permanently. Therefore,

A4NR concluded that all post-outage facility-related rates should be refunded.99

Furthermore, A4NR argued that all SONGS assets, including CWIP not in

service, should be removed from rate base no later than November 1, 2012, if not

February 1, 2012, and zero return on investment authorized.100

98 A4NR Comments on Modification Ruling at 8.

99 A4NR Phase 1 Opening Brief (OB) at 2.

100 A4NR Phase 2 OB at 24.


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Particular to the proposed settlement, A4NR argues it is untimely and

does not meet the criteria necessary for Commission approval.101 A4NR’s

premise is that the NRC citation issued to SCE for failure to properly supervise

Mitsubishi’s design of the RSGs “places Edison at the head of the chain of

causation.”102 A4NR characterizes SCE’s decision to not contest the NRC citation

as an admission of imprudence of its regulatory duty as the operator to “retain

responsibility for the quality assurance program.”103 Thus, A4NR concludes that

SCE is factually unable to meet the reasonable manager standard for an operator.

A4NR contends the Agreement is unduly expansive and pre-emptive of

issues the Commission should consider as “core priorities” (e.g., review of

purchased power costs, SCE violations of NRC regulations, increased

emissions).104 Instead, the Agreement ignores these issues, “absolves Edison

management of culpability for its admitted violation of NRC regulations

concerning design control, and ignores the large majority of multi-billion dollar

consequences that flowed from that violation.”105 Moreover, A4NR is troubled

by statements made by some at SCE or its parent company, Edison International,

which imply the terms of the settlement will have nominal impact on SCE’s

earnings.106

101 A4NR Opening Comments (OC) at 1.

102 Id. at 2; See, Ruling Taking official Notice of Documents and Ruling on Various Motions (September 11, 2014) at 4.

103 A4NR OC at 3.

104 Id. at 7-12.

105 Id at 15.

106 Id. at 17-21.


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Terms of the Agreement which authorize recovery of nearly all

preliminarily authorized O&M, a different result from a proposed decision in

Phase 1, must be unreasonable in light of the record, argues A4NR. Similarly, it

claims the treatment of CWIP unreasonably fails to account for the

“extraordinary and continuing growth in CWIP” since the SONGS closure.107

The calculation of replacement power costs, including ratepayer credits for lost

energy sales revenue, omission of expanded community education, and the third

party recovery incentives are also rejected by A4NR as being neither consistent

with, nor reasonable in light of, the record.

A4NR criticizes the original proposed sharing formula for third party

recoveries as unsupported, and lacking any independent assessment of the

merits of SCE’s claims. The formula is inverse to the public interest, states

A4NR, because it incentivizes SCE to settle as soon as it has been made whole.

The formula should be reversed or eliminated, and the Commission’s ability to

review any such recovery for reasonableness should be restored, states A4NR.

Furthermore, A4NR disputes that the utility recovery authorized in the

Agreement, particularly for 2012-2013 O&M and CWIP that didn’t enter service,

is consistent with § 451.108 A4NR contends that the terms authorizing the utilities

to retain all SGRP costs prior to the outage, are improperly calculated by SCE

and not in the public interest.109 Similarly, A4NR is unconvinced the 5% sales

incentives for M&S and NFI will actually benefit ratepayers, and render the

refund amounts unknown for now.

107 Id. at 27.

108 Id. at 39-41.

109 Id. at 43-44.


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Lastly, A4NR views the implied use of nuclear decommissioning trust

funds for certain CWIP and 2014 expenses to be misguided, premature, and

likely in violation of California’s Nuclear Facility Decommissioning Act of

1985.110

5.2.2.2. Women’s Energy Matters (WEM)

WEM opposes the Agreement and asserts it does not meet the criteria for

Commission approval. Instead, WEM recommends the Commission order large

refunds of funds collected in 2012-2013, and continue with Phase 3.111 The

modifications adopted by the Settling Parties did not alter WEM’s disapproval of

the Agreement.112

First, WEM argues the Agreement is not reasonable in light of the whole

record because it does not reflect the entire record, as evidenced by omission of

any reference to expanded community outreach addressed in Phase 1. In

addition, because the Agreement settles the contested OII, WEM contends it

“diminishes” the contributions of other, non-settling parties, which WEM

concludes is per se unreasonable.113

WEM’s contention the Agreement is inconsistent with the law is primarily

based on its view that when ORA became a settling party, it violated its duty to

ratepayers under § 309.5. Section 309.5 establishes the Office of Ratepayer

Advocates (ORA) “to represent and advocate on behalf of the interests of public

utility customers….The goal of the office shall be to obtain the lowest possible

110 Id. at 53-58.

111 WEM OC at 6.

112 WEM Comments on Modification Ruling.

113 WEM OC at 5.


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rate for service consistent with reliable and safe service levels.” In WEM’s view,

ORA moved too far from its litigation position of rejecting

cost-of-service ratemaking for SONGS, including seeking disallowance of all

SGRP inspection and repair costs, reduced recovery with zero rate of return on

Base Plant, reduced 2012-2013 O&M, and capping replacement power costs in

June 2013.114

Lastly, WEM argues the Agreement is not in the public interest because it

stops the investigation before review of the SGRP. The Commission “promised”

the public an investigation when it opened the OII, claims WEM, and the

resulting Agreement prevents the public from knowing whether SCE was

DECISION APPROVING SETTLEMENT AGREEMENT AS AMENDED … · 2015. 1. 27. · On April 2, 2014, six...

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